Health savings accounts have been around for nearly a decade. Over the years, we've seen significant changes as HSAs adapted to the marketplace and to fulfill Americans' health care needs. As a result, both the number of HSA accounts — and the dollars in them — have risen sharply.
With most of the key provisions of the Affordable Care Act effective Jan. 1, 2014, HSAs stand poised to be reinvented, reinvigorated and rediscovered by a new segment of the population. They will expand at an even greater rate than in the past, presenting a great opportunity for credit unions to bring in new accounts and new customers, including partnering with small businesses.
A Brief History, A Look Ahead
HSAs originally were designed to give small employers the opportunity to offer health care at a lower cost to their employees — a benefit that was previously too costly for many small businesses. As the shift to affordable health care benefits was occurring among small businesses, many large employers began converting their traditional HMOs and PPOs to high-deductible health plans in an effort to cut costs. This shift among both large and small businesses drove the explosion of HDHPs and HSAs in the last decade.
The resulting growth in HSAs is staggering. In 2006, HSAs held more than $1.7 billion. At the end of 2012, that number had risen to $15.4 billion — a nearly 10-fold increase. The boom isn't limited to account openings. Dollar growth has more than doubled every two years — even at the height of the Great Recession. Since 2008, the number of individuals with HDHP/HSA coverage expanded from 6.1 million to 15.5 million.
The employer-provided health care marketplace is still driving towards HDHPs with HSAs. Even without the new health care law, this trend would have continued into the future. Imagine the growth potential when the employer mandate under ACA takes effect in late 2014.
Boosting Revenues With HSAs
Surprisingly, it does not cost much to offer HSAs to your customers. Credit unions need to offer forms and documents and have the ability to do the required tax reporting. Offering HSAs opens the doors to new customers and exhibits that your credit union has all of the financial products and services that are important to your prospective customer base.
HSAs also can drive some noninterest revenue for your organization through a variety of fees. Most deposit HSAs are housed in DDA accounts and tied to a debit or check card. According to a 2013 study by Devenir, HSA accounts with check cards are swiped an average of eight times a year with an average transaction amount of approximately $120. This is quantifiable revenue, along with any low-balance, account-closing or transfer fees that your organization could impose.
The real revenue opportunity is in that 27-year-old, “just fell off of my parents' insurance” crowd. These individuals likely are a targeted demographic group by your financial organization today — albeit not for HSAs. As you expand your customer base and drive revenue, particularly through lending, this generation of Americans is the future of your lending and deposit programs.
Entering the HSA Market
The key question when looking at the HSA marketplace and whether your credit union can support them is: what do you do today?
Your credit union offers share draft accounts today with debit cards. An HSA version of this account simply requires you to make slight alterations with a focus of preventing overdrafts and looking at contribution limits. All other fees may apply. The HSA owner is responsible for proper use of HSA dollars.
Reporting HSA contributions to the IRS and HSA owner is similar to IRA contribution reporting. IRA contributions are reported on Form 5498, and HSA contributions are reported on Form 5498-SA. HSA training also is readily available for staff.
As HSAs continue to gain popularity among consumers, they will emerge as an important factor for individuals selecting a financial institution. HSAs can, at best, give you a competitive edge in acquiring and retaining customers. At worst, the lack of offering HSAs could send loyal customers down the street — potentially taking other lending business and accounts with them.
Entering the HSA market is one of the easier offerings your credit union can make available. The question becomes: how broad of an offering do you want?
Steve Christenson is EVP of Ascensus in Dresher, Pa.
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